Abe, Trump settle on 'draw' in bilateral trade negotiations

U.S President Donald Trump, accompanied by Japanese Prime Minister Shinzo Abe, left, speaks at a news conference at the G-7 summit in Biarritz, France, Sunday, Aug. 25, 2019, where they announced that the U.S. and Japan have agreed in principle on a new trade agreement. (AP Photo/Andrew Harnik)

BIARRITZ, France -- Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump made mutual compromises as they agreed in principle on a bilateral trade deal during their summit meeting here on Aug. 25, with Trump rushing to display his achievements and Japan aiming to keep its market liberalization to a minimum.

Behind the move lies the increasingly complex security environment in East Asia, with North Korea's intensifying provocations and Japan's souring relations with South Korea. Amid the circumstances, Japan strived to maintain a honeymoon relationship with the United States.

"It's a very big transaction, and we've agreed in principle. It's billions and billions of dollars," Trump told reporters after his meeting with Abe on the sidelines of the Group of Seven summit in the southern French resort of Biarritz.

During the bilateral meeting, their fourth summit this year, Abe and Trump agreed to seek to sign a trade pact in September on the sidelines of the United Nations General Assembly meeting based on their latest agreement. The bilateral pact is expected to cap five-month-long trade negotiations that started with ministerial talks in April.

Although the two countries have not revealed the details of the agreement, Abe and Trump apparently settled on a "draw" in their negotiations despite Trump bragging about the positive accomplishments in the talks. Specifically, Tokyo will adhere to the Trans-Pacific Partnership (TPP) free trade pact and lower its tariffs on U.S. beef in stages to 9% from the current 38.5%. The U.S., on the other hand, will set up a tariff-free import quota for up to 3,000 tons of Japanese beef. Japan will not comply with the U.S. demand to create import quotas for butter and non-fat dry milk in the face of fierce opposition from domestic farmers.

Japanese officials involved in the negotiations showed a sense of relief as Tokyo has taken a position that tariff reductions would be permissible as long as they do not exceed levels promised under the TPP. However, the latest agreement failed to include the removal and reduction of automobile tariffs as Japan has demanded, with Tokyo apparently showing consideration for Trump's emphasis on domestic employment.

The Japan-U.S. trade negotiations began in April between economic revitalization minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer. As Washington did not back down on its hard-line stance until mid-August including its demand that Japan lower its tariffs to levels beyond the TPP deal, it had remained "fifty-fifty" whether any bilateral accord would be reached in the Aug. 25 meeting between Abe and Trump, according to a source close to the situation.

However, Tokyo and Washington apparently accelerated their negotiations ahead of the bilateral summit. After working-level talks, a ministerial meeting was held in Washington from Aug. 21 to 23. Following the Aug. 23 meeting, Motegi told reporters, "We have shared our positions. This will probably be our last negotiation," indicating that both parties reached a broad agreement.

Behind the speedy settlement lies the Trump administration's aspiration to map out positive results in the run-up to the U.S. presidential election next year. U.S. domestic farmers voiced concerns over the declining competitiveness of their exports to Japan compared to countries covered under the TPP accord after the U.S. withdrawal from the deal. Furthermore, "U.S. agricultural organizations pressured Washington to reach an early agreement" amid plunging agricultural exports to China due to the ever intensifying trade war, according to a source close to the negotiations.

Japan feared that Trump could introduce quantitative import restrictions and additional tariffs on Japanese automobiles if the negotiations became tangled. Therefore, Tokyo prioritized reaching an agreement in the agricultural sector by shelving its demands over the removal of auto tariffs. Motegi told a post-summit press conference, "I understand that no additional tariffs would be applied to automobiles." A source close to the Japanese government explains that Motegi's comment about no more bilateral ministerial talks was his "declaration to the U.S. that Japan will not leave room for any further negotiations."

With the envisaged signing of a bilateral trade pact in New York on the sidelines of the U.N. General Assembly meeting in late September in mind, the Japanese and U.S. governments will work out the specifics and draft texts of the accord. The trade pact may take effect by the end of the year after deliberations in the extraordinary Diet session this coming fall.

(Japanese original by Yusuke Matsukura, Business News Department, reporting from Biarritz, France)